What should I do when I receive a 1099-K form? (Updated for Tax Year 2013)

If you're a sole proprietor, incorporating Form 1099-K into your tax return is a matter of accurately reporting the income (or loss) from your business in your Schedule C, and attaching it to your 1040.

Here’s a checklist to keep you on track:

Mark April 15, 2014 on your calendar! If you're a sole proprietor, you report your business income and expenses on your personal income tax return which is due to the IRS on April 15, 2014, unless you file for an extension (Note: Even if you file an extension, money you owe in taxes is due to IRS on April 15).

Gather all the 1099-K’s you received, total the values in line 1, and then enter the total on Line 1a of your Schedule C. This amount may be higher than you expected because it represents the gross amount processed by third-party payment processors such as Paypal, Amazon Payments, Etsy Direct Checkout and Google Checkout. It does not subtract any returns and chargebacks you may have made in 2013.

Make sure all your business accounts are connected to

GoDaddy Bookkeeping. It’s important to connect all of your accounts, so that you have all of your business income and expenses accounted for in one place. GoDaddy Bookkeeping will do the hard work of importing your income and expense transactions, and categorizing them into IRS-approved categories for the Schedule C.

Manually enter income any expenses which were not part of the business accounts you connected to GoDaddy Bookkeeping. Examples of transactions which need to be manually entered are mileage and cash payments. Note: Make sure you talk to your accountant about mileage. You must have a detailed log of each trip.

Go to the Expenses page in GoDaddy Bookkeeping, and comb through the list of Uncategorized Expenses. If there are transactions here which are business expenses, assign them a category. (Ideally, you will already have dealt with your Uncategorized Expenses as they are imported into GoDaddy Bookkeeping i.e. before you start filling out any tax paperwork.)

Review the Schedule C Worksheet in GoDaddy Bookkeeping to make sure you are not missing any obvious sources of income or expense. If you are, repeat Steps 3, 4, 5.

Review line 31 on the Schedule C Worksheet. This is the net profit you will report to the IRS on your 1040, and it is the amount from which your tax bill will be calculated.

Print out the Schedule C Worksheet and use it with your tax preparation method, e.g. an accountant or tax software.